The keys to growth Featured

8:00pm EDT June 25, 2007

Business is a lot like a muscle-building workout. You stretch your capabilities, you work through sore spots and adapt. You grow stronger, then you push the limits again.

“I don’t know of any successful business owners who are willing to remain stagnant and don’t want to grow,” says Lori Geier, vice president and team lead, business banking, Fifth Third Bank, Cincinnati.

Smart Business asked Geier to review the various stages of a new venture’s first year in business, prompting questions business owners should seriously consider so they don’t end up writing an episode of “failure to launch.”

What is the most challenging time for a business owner who wants to expand or start a new business?

The hardest part is what happens before the door opens — that all-important planning phase. This is the time before you secure capital for your business and during the point when you should be discussing with your advisory team (accountant, attorney, insurance specialist, banker, etc.) the viability of your new product/service/business. In short, you need a well-laid plan. Be prepared to define why this venture will work, which customers you will target and what resources will support your idea. Do you have the right people in place? Is competition doing the same thing? If so, are they in close proximity? As you analyze the upsides, also consider the potential obstacles and risks. Use your banker as a sounding board when answering these questions. It’s important that he or she serves as one of your trusted advisers — someone who can provide candid feedback based on experiences with other clients in similar and different industries.

Why is assessing risk such an important exercise before securing capital?

A banker can sometimes assess the level of confidence business owners have in their ideas based on the equity they are willing to invest or assets they are willing to pledge. However, it’s important to set a limit and decide ahead of time how much risk you are willing to take in leveraging your personal assets.

Aside from personal risks, consider risks associated with the economy, your industry, seasonality, suppliers and materials. Determine whether there will be enough return on your capital to make it worth the risks involved. Your accountant can help you determine this by helping you project cash needs and expected returns.

Even if you are leveraging capital against a current, successful business, be careful about how much you are willing to lose.

What are some common mistakes business owners make when they are securing capital to fund a new venture, product line or expansion?

It’s important to have access to adequate capital to finance your venture. If you are borrowing, use the appropriate credit facilities. Generally speaking, you don’t want to take out long-term financing for a short-term need; rather, time the loan repayment to the useful life of the asset that will support it. Also, you want to anticipate your cash flow needs — don’t underestimate your organizing and operating costs. Work with your banker to balance your cash flow so that you remain properly capitalized.

No matter how tight cash flow gets, always be sure to pay the basics: real estate taxes if you own property, business insurance, health insurance and payroll taxes.

That brings us to the first 90 days of a venture/new product/business. What should owners consider at this point?

This first three months is an evaluation phase. Is your idea taking hold in the marketplace? Are you targeting the right customers? Do you have the right suppliers and are they reliable? Did you secure enough of the right kind of capital? What obstacles do you face at this point, and who is your competition? Answering these questions when you are so close to the business is a challenge.

In addition to your advisory team, recruit a peer group of business owners that face similar challenges. They can often see the rough spots in a business process before you can, especially if you are focused in everyday operations.

Once an owner establishes a successful process, secures a strong customer base and reliable suppliers, what’s next?

The nature of most business owners is to expect success. But the first year isn’t always profitable, and rarely does an entrepreneur strike it rich on a venture after the first 12 months. So be patient. Consult with your advisers, your peer group and your colleagues. Strategically implement changes to strengthen the operation. At this stage in the game, building a solid process is just as important as growing the top line.

LORI GEIER is vice president and team lead of business banking for Fifth Third Bank in Cincinnati. Reach her at (513) 561-2359 or lori.geier@53.com.